Portfolio theory tends to define risky investments in terms of just two factors: expectedreturns and variance (or standard deviation) of those expected returns. What assumptions need to be made about investors and the expected investment returns (one assumption in each case) to justify this ‘two-factor’ approach? Are these assumptions justified in real life?

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Expected return and variance are two statistical measures that may be accustomed analyze a portfolio The expected return of a portfolio is that the an... View the full answer